Avoid payment defaults

Anyone who runs a business knows the annoyance: customers repeatedly fail to pay open invoices. In addition to financial loss, such defaults also cause administrative effort and strain nerves.

When invoices are not paid, losses to receivables occur. These are claims against customers that cannot be collected. For companies, however, losses on receivables mean not only losses but also additional effort. Ultimately, reminders must be sent out and the claims must be written off in the accounting. Therefore, it is worthwhile to prevent payment defaults through appropriate measures.

Credit Assessment

Before concluding a business deal, it is advisable to check whether a customer is solvent. Thanks to modern techniques, the effort for such preliminary clarifications nowadays is minimal. For legal entities, often a simple Google search (e.g., headlines, business report), a look into the commercial register (amount of share capital), or SHAB (debt enforcement, bankruptcies) is sufficient to gain insight into their economic situation. Moreover, there is the possibility to inform oneself in so-called credit data pools about the creditworthiness of customers. Such data pools, like for example the Credit Decision data pool, contain information about the creditworthiness of customers. The partners of the pool commit to disclosing the data of customers with open payment obligations and in turn gain access to other names. They thus benefit from a large collection of experience.

Prepayment

The simplest way to avoid payment defaults is to require a prepayment. Especially when large sums are involved or the creditworthiness of a customer is questionable, it may be sensible to demand an advance. While this contributes to financial security, it also runs the risk of deterring customers. If they feel a sense of distrust, it can severely affect the business relationship or even prevent its formation.

Payment Terms and Discounts for Early Payment

Both the setting of short payment deadlines and the granting of early payment discounts have proven effective in avoiding losses on receivables. The so-called "discount" is a special form of rebate that is granted for the early settlement of open invoices. Those who pay within a short period pay less. Thus, customers are incentivized to settle amounts promptly.

Debt Collection or Assignment

Sometimes all precautions are not enough and a payment default threatens. In this case, there is still the option to have an open claim collected by an external service provider or to assign it to them. In the first case, a debt collection agency demands the amount from the customer for a fee, while in the second case, a professional service provider takes over the open claim for a fee. Generally, the payment is significantly lower than the outstanding claim amount. The assigning company can thus minimize the loss but still has to accept a default. At least, the stress and administrative effort are eliminated.

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